Q2 2024 Aramark Earnings Call
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Operator: Good morning, and welcome to Aramark's second quarter fiscal 2024 earnings results conference call. My name is Kevin, and I'll be your operator for today's call. At this time, I'd like to inform you this conference is being recorded for rebroadcast and that all participants are in a listen-only mode. We will open the conference call for questions at the conclusion of the company's remarks. I will now turn the call over to Felise Kissell, Senior Vice President, Investor Relations and Corporate Development. Ms. Kissell, please proceed.
Kevin: Good morning, and welcome to Aramark 's second quarter fiscal 2024 earnings results Conference call. My name is Kevin and I'll be your operator for today's call at this time I'd like to inform you. This conference is being recorded for rebroadcast and that all participants are in a listen only mode. We will open the conference call for questions at the conclusion of the Companys remarks, I will now turn the call over to police Crisil Senior Vice President Investor.
Kevin: Our relations of corporate development Mr. Yourself. Please proceed.
Felise Glantz Kissell: Thank you, and welcome to Aramark's second quarter fiscal 2024 earnings conference call and webcast. This morning, we will be hearing from our Chief Executive Officer, John Zillmer, as well as our Chief Financial Officer, Jim Tarangelo. As a reminder, our notice regarding forward-looking statements is included in our press release this morning, which can be found on our website. During this call, we will be making comments that are forward-looking. Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties, and important factors, including those discussed in the risk factors, MV&A, and other sections of our annual report on Form 10-K and our other SEC filings.
Crisil: Thank you and welcome to <unk>.
Crisil: Second quarter 'twenty.
Crisil: 'twenty 'twenty four earnings conference call and webcast.
Crisil: Morning.
Crisil: Archie.
Crisil: As well as our Chief Financial Officer.
Speaker Change: Uh huh.
Speaker Change: As a reminder, our notice regarding forward looking statements.
Speaker Change: Included in our press release this morning.
Speaker Change: Can be found on our website.
Speaker Change: On this call we will be making comments that are forward looking.
Speaker Change: Actual results may differ materially.
Speaker Change: Alright.
Speaker Change: Certainly.
Speaker Change: Yes.
Speaker Change: Scott.
Speaker Change: And others.
Speaker Change: Sure.
Speaker Change: Okay.
Felise Glantz Kissell: Additionally, we will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found in this morning's press release as well as on our website. So with that, I'll now turn the call over to John.
Speaker Change: Hey.
Speaker Change: Additionally, we will be discussing certain non-GAAP.
Speaker Change: Sure.
Speaker Change: Reconciliation of these items.
Speaker Change: This morning's press release.
Speaker Change: On our website.
Speaker Change: With that I'll now turn the call over.
John J. Zillmer: Good morning, everyone. We had another great quarter of results driven by our commitment to growth across the company. Aramark hit record total company revenue for any second quarter in our history, as well as record second quarter profit in international. The vast majority of our profitability improvement in the quarter came from strategies we've taken to drive performance, while also benefiting from some inflation tailwinds. Once again, substantial base business growth, pricing, and net new business contributed to organic revenue growth, which was up 9.4% in the second quarter compared to the prior year.
Speaker Change: Uh huh.
Speaker Change: Good morning, everyone.
Speaker Change: Had another great quarter of results driven by our commitment to growth across the company.
Speaker Change: Aramark hit record total company revenue for any second quarter in our history as well as record second quarter profit in international.
Speaker Change: The vast majority of our profitability improvement in the quarter came from strategies, we've taken to drive performance, while also benefiting from some inflation tailwind.
Speaker Change: Once again, a substantial base business growth pricing and not new business contributed to organic revenue growth, which was up nine 4% in the second quarter compared to the prior year.
Speaker Change: We continued to experience consistently strong retention rates, along with sizable new business potential.
John J. Zillmer: We continue to experience consistently strong retention rates, along with sizable new business potential. Organic revenue in the U.S. segment increased by 7 percent in the second quarter versus last year, led by three areas of the business.
Speaker Change: Organic revenue in the U S segment increased by 7% in the second quarter versus last year led by three areas of the business.
John J. Zillmer: First, we've seen continued momentum in collegiate hospitality due to enhanced culinary partnerships and new business wins, as well as innovation leading to increased participation. Sports and Entertainment had another great quarter with impressive per capita spending rates and higher attendance levels, especially during the NFL season, as well as from our growing presence in the NCAA. We expanded our grab-and-go micro-markets and self-checkout offerings and launched additional local restaurant partnerships, which continue to resonate with fans. We'd also like to congratulate the South Carolina Gamecocks, the Iowa Hawkeyes, and the Purdue Boilermakers for their achievements in reaching their respective NCAA basketball championship games, all Aramark clients.
Speaker Change: First we're seeing continued momentum and collegiate hospitality did one enhance culinary partnerships and new business wins as well as innovation leading to increased participation.
Speaker Change: Sports and entertainment had another great quarter with impressive per capita spending rates and higher attendance levels, especially doing here, that's all citizen as well from our growing presence in the U N C. Double E. We expanded our grab and go on micro markets and self checkout offerings and launched additional local restaurant partnerships, which continue to resonate with fans.
Speaker Change: <unk>.
Speaker Change: We'd also like to congratulate the South Carolina Gamecocks, the Iowa, Hawkeye's and Purdue Boilermakers for their achievements in reaching their respective N C. Double a basketball championship games, all aramark clients and.
John J. Zillmer: And lastly, workplace experience gained momentum across all regions as the quarter progressed, led by new business coming on board, increased employee participation rates, and additional catering activities. The U.S. segment continues to deliver new business wins. Most recently, we were very excited to add Oracle Park, the home of the San Francisco Giants, to our baseball portfolio. I was at the stadium for opening day and experienced firsthand the enthusiasm of our Aramark team, proudly serving fans with new, innovative culinary creations combined with iconic fan favorites.
Speaker Change: And lastly, workplace experience gained momentum across all regions as the quarter progressed, but by new business coming on board increased employee participation rates and additional catering activity.
Speaker Change: The U S segment continues to deliver our new business wins. Most recently were very excited to add Oracle Park. The home in the San Francisco Giants to our baseball portfolio I was at the stadium for opening day and experienced firsthand the enthusiasm of our Aramark team, probably serving fans with new innovative culinary creations combine.
Speaker Change: With iconic fan favorites.
John J. Zillmer: Other new client additions include the University of New Mexico, Denison University, and Clark University in Collegiate Hospitality, as well as Dublin City Schools in Student Nutrition, to name a few. Corrections also continued to expand its portfolio, taking great pride in the success of our Into Work program as a second chance employer, a program that is now in over 300 of our locations. In the international segment, every country and region within the Aramark portfolio saw organic revenue growth in the second quarter, led by mining services in Latin America, increased business dining volume in the UK, and continued strength in education across Canada, resulting in a year-over-year increase of 16%.
Speaker Change: Although new client additions include the University of New Mexico, Denison University, and Clark University, and collegiate hospitality as well as Dublin City schools and students nutrition to name a few.
Speaker Change: Corrections also continued to expand the portfolio taken great pride in the success of our in the work program as a second chance employer a program that is now in over 300 of our locations.
Speaker Change: In the international segment every country and region within the Aramark portfolio saw organic organic revenue growth in the second quarter led by mining services in Latin America increased business volume in the U K and continued strength in education across Canada, resulting in a year over year increase of 16%.
John J. Zillmer: Our Aramark Korea team served fans at a pair of Major League Baseball opening day games for the National League West rivals, the San Diego Padres and the L.A. Dodgers, who played in Seoul towards the end of the quarter, leading to new opportunities in sports.
Speaker Change: Our Aramark Korea came served fans at a pair of major League baseball opening day games for the National League West rivals, the San Diego Padres and the La Dodgers, who played in Seoul towards the end of the quarter, leading to new opportunities and sports.
John J. Zillmer: New business has been strong and international, which most recently included expanding our presence with Merlin Entertainment in the UK, offering additional B&I services to Continental AG in Germany, and building upon our remote camp capabilities in Canada, adding Wood Fiber LNG and Leadcore Group as clients. The international team has been awarded numerous new wins, collectively providing us with the ability to build scale in the countries we serve. In the second quarter, we hosted our first International Innovation Summit in Santiago, Chile, which included participation from our country leaders, global clients, and technology partners, with approximately 700 attendees.
Speaker Change: New business has been strong in international which most recently included expanding our presence with Merlin entertainment in the UK offering additional P&I services to Connecticut to Continental AG in Germany and building upon our remote camp capabilities in Canada, and what fiber LNG and led core group of clients.
Speaker Change: The international team has been awarded numerous new wins collectively providing us the ability to build scale in the countries we serve.
Speaker Change: In the second quarter, we hosted our first international innovation Summit in Santiago, Chile, which included participation from our country leaders global clients and technology partners with approximately 700 attendees. We used our time together to explore it food and facility service models of the future focused on innovation around customer experience.
John J. Zillmer: We used our time together to explore food and facility service models of the future, focused on innovation around customer experience, safety, sustainability, and artificial intelligence. Now, let's turn to the global supply chain. Our overall objective continues to be focused on consistently growing and leveraging our managed services global supply chain and GPO network spend of $19 billion and providing quality products, services, and analytical insights to our clients. International expansion is an area of focus on our strategy with several of our multinational clients, offering us the opportunity to broaden our procurement services on a global scale.
Speaker Change: <unk> safety sustainability and artificial intelligence.
Speaker Change: Now, let's turn to global supply chain.
Speaker Change: Our overall objective continues to be focus on consistently growing and leveraging our managed services global supply chain and GPO network spend of $19 billion and providing quality products services and analytical insights to our clients International expansion is an area of focus on our strategy with several of our multinational clients offering.
Speaker Change: That's the opportunity to broaden our procurement services on a global scale.
John J. Zillmer: As I previously mentioned, we saw some continued improvement on the inflation side, which helped product costs in the second quarter. Jim will be providing additional detail on the benefits we're experiencing. Our AI work in the global supply chain is creating additional efficiencies with enhanced data harmonization and analytics for our operators and clients, particularly in sourcing optimization and reporting. As an example, we're leveraging these capabilities to share insights with our clients to further understand their community impact with local, regional, diverse, and sustainable spend to achieve their ESG goals.
Speaker Change: As I previously mentioned, we saw some continued improvement on the inflation side, which helped to product costs in the second quarter, Jim will be providing additional detail on the benefits we're experiencing.
Speaker Change: Our AI work in global supply chain is creating additional efficiencies with enhanced data harmonization and analytics for our operators and clients, particularly on sourcing optimization and reporting.
Speaker Change: As an example, we're leveraging these capabilities to share insights with their clients and further understanding their community impact with local regional diverse and sustainable spend to achieve their ESG goals.
John J. Zillmer: Finally, we continue to strengthen our balance sheet, and our active discussion is to sell the remaining portion of our ownership stake in the San Antonio Spurs NBA franchise. We expect to sell the remaining interest prior to the end of the fiscal year, and we will provide additional detail on a potential transaction soon. I'll now turn the call over to Jim.
Speaker Change: Finally, we continue to strengthen our balance sheet and are in active discussions to sell the remaining portion of our ownership stake in the San Antonio Spurs NBA franchise, we expect to sell the remaining interest prior to the end of the fiscal year and we will provide additional detail on a potential transaction soon.
Speaker Change: I'll now turn the call over to Jim.
James J. Tarangelo: Thanks, John, and good morning, everyone. Over the past several months, I've spent time with many of you reviewing the business and outlining my immediate priorities since becoming CFO in January. I have focused on two primary areas, continuing to drive profitable growth with the goal of reaching new levels of financial performance and leveraging that growth to capitalize on our underlying margin leverage. With that, we had another very strong quarter, building on the momentum we generated in the first quarter, reinforcing that our model is working and producing the results we expect. With this framework now firmly in place, and the operating environment normalized, the company is at an exciting inflection point as we execute on our strategy, all with a mindset of creating significant value for our stakeholders.
Speaker Change: Jim.
Jim: Thanks, John and good morning, everyone.
Jim: Over the past several months I've spent time with many of you reviewing the business and outlining my immediate priorities since becoming CFO in January.
Jim: Our focus on two primary areas continuing to drive profitable growth with the goal of reaching new levels of financial performance.
Jim: Leveraging that growth to capitalize on our underlying margin levers.
Jim: With that we had another very strong quarter building on the momentum we generated in the first quarter.
Jim: Reinforcing that our model is working and producing the results we expect.
Jim: With this framework now firmly in place and the operating environment normal normalized the company is at an exciting inflection point as we execute on our strategies all with a mindset of creating significant value for our stakeholders.
James J. Tarangelo: As John reviewed, in the second quarter, we reported organic revenue growth of more than nine percent versus the prior year. Driven by strong base business growth and the contribution from net new business, along with price, operating income in the second quarter grew by 27 percent year-over-year to $159 million.
Jim: As John reviewed in the second quarter, we reported organic revenue growth of more than 9% versus the prior year.
Jim: Driven by strong base business growth and the contribution from net new business along with pricing.
Jim: Operating income in the second quarter grew by 27% year over year to $159 million.
James J. Tarangelo: An adjusted operating income was up 29% on a constant currency basis from a year ago to $187 million. AOI margin grew by nearly 70 basis points year-over-year on a constant currency basis, with approximately 50 basis points driven by those underlying levers so core to our model, including scale and SG&A, supply chain efficiencies, discipline in the middle of the P&L management, and progression of new business maturity, with the remainder coming from Screwing Inflation Trends.
Jim: And adjusted operating income was up 29% on a constant currency basis from a year ago to $187 million.
Jim: Margin grew by nearly 70 basis points year over year on a constant currency basis.
Jim: With approximately 50 basis points driven by those underlying levers so core to our model including scale in SG&A.
Jim: Apply chain efficiencies.
Jim: Typically in middle of the P&L management and progression of new business majority.
Jim: The remainder coming from recruiting inflation trends.
James J. Tarangelo: Turning to the business segments, FSS US achieved AOI growth of 21% and an AOI margin improvement of 65 basis points on a constant currency basis compared to the same period last year. Education, business, and industry, and sports, leisure, and corrections all had particularly strong quarters due to disciplined middle-of-the-P&L management combined with higher base business growth, especially in our collegiate hospitality and corrections businesses, from our ability to recover the price inflation lag we've previously discussed.
Jim: Turning to the business segments.
Jim: <unk> achieved NOI growth of 21% with.
Jim: With an <unk> margin improvement of 65 basis points on a constant currency basis compared to the same period last year.
Jim: Education business and industry and sports leisure and corrections, all had particularly strong quarters due to disciplined middle of the P&L management.
Jim: Bind with higher base business growth.
Jim: Specialty and our collegiate hospitality and correction businesses from our ability to recover the price inflation lag we've previously discussed.
James J. Tarangelo: The international segment had year-over-year AOI growth of 29% and an AOI margin improvement of nearly 45 basis points, both on a constant currency basis. Year-over-year AOI growth was driven by higher base business volumes, Net New Business, and Supply Chain Efficiencies, led by the UK, Germany, and Latin America.
Jim: The international segment had year over year NOI growth of 29%.
Jim: <unk> margin improvement of nearly 45 basis points, both on a constant currency basis.
Jim: Year over year growth was driven by higher base business volume.
Jim: Net new business and supply chain efficiencies led by the U K, Germany and Latin America.
James J. Tarangelo: Regarding inflation, we are seeing trends tracking similarly to what we experienced in the first quarter and providing some tailwinds to our underlying margin levers. We still anticipate inflation to be around 4% to 5% for the fiscal year, consistent with our expectations we conveyed last quarter. Turning to the remainder of the income statement, interest expense decreased by almost 25%, primarily due to the $1.5 billion debt repayment of the 2025 senior notes.
Jim: Regarding inflation, we are seeing trends tracking similarly to what we experienced in the first quarter.
Jim: And providing some tailwind to our underlying margin levers.
Jim: We still anticipate inflation to be around 4% to 5% for the fiscal year.
Jim: <unk>, we're their expectations, we conveyed last quarter.
Jim: Turning to the remainder of the income statement.
Jim: <unk> expense decreased by almost 25% primarily from the $1 5 billion debt repayment of the 2025 senior notes.
James J. Tarangelo: The adjusted tax rate was approximately 26%. Our strong quarterly performance resulted in a gap EPS of 20 cents and adjusted EPS of 29 cents. An increase of 79% versus the prior year on a constant currency basis. With respect to cash flow, the company generated a cash inflow in the quarter, consistent with our normal seasonal business cycle. Cash flows from operating activities in the second quarter were $221 million, and Free Cash Flow was $140 million.
Jim: The adjusted tax rate was approximately 26%.
Jim: Our strong quarterly performance resulted in GAAP EPS of <unk> 20.
Jim: And adjusted EPS of <unk> 29.
Jim: An increase of 79% versus the prior year on a constant currency basis.
Jim: With respect to cash flow the company generated a cash inflow in the quarter consistent with our normal seasonal business cadence.
Jim: Cash flows from operating activities in the second quarter was $221 million.
Jim: And free cash flow was $140 million.
James J. Tarangelo: The current quarter was impacted by payments of approximately $25 million for the remaining fees associated with the completion of the SPIN transaction, as well as higher income tax payments from increased profitable growth and slightly more capital expenditure. At quarter end, the company had over $1.1 billion in cash available. We also took steps to enhance our capital structure by repricing our 2028 and 2030 term loans at lower interest rates. This repricing is expected to generate annual interest expense savings of approximately $10 million.
Jim: The current quarter was impacted by payments of approximately $25 million.
Jim: For the remaining fees associated with the completion of the spin transaction.
Jim: As well as higher income tax payments from the increased profitable growth.
Jim: Slightly more capital expenditures.
Jim: At quarter end, the company had over $1 1 billion and cash availability.
Jim: Yes.
Jim: We also took steps to enhance our capital structure by repricing, our 2028 and 2030 term loans at lower interest rates. This repricing is expected to generate annual interest expense savings of approximately $10 million.
James J. Tarangelo: We will continue to proactively pursue opportunities to further strengthen our balance sheet. I'll wrap up with our outlook expectations for the remainder of this fiscal year. We are very pleased with our year-to-date performance and the trends we are seeing in the business. As a result, we are updating our fiscal 24 outlook for organic growth to be at 9% or better and reaffirming our expectation for AOI growth and adjusted EPS growth, which we indicated would be toward the higher end of the range last quarter.
Jim: We will continue to proactively pursue opportunities to further strengthen our balance sheet.
Jim: I'll wrap up with our outlook expectations for the remainder of this fiscal year we.
Jim: We are very pleased with our year to date performance and the trends we are seeing in the business.
Jim: As a result, we are updating our fiscal 'twenty outlook for organic growth to be at 9% or better.
Jim: And reaffirming our expectation for AI OE growth and adjusted EPS growth, which we indicated would be towards the higher end of the range last quarter.
James J. Tarangelo: With that, we currently anticipate the following full year performance: organic revenue growth of 9% or better. AOI growth of 17% to 20%, and adjusted EPS increasing by 30% to 35%. And lastly, a leverage ratio of approximately 3.5 times by the end of the fiscal year. Our strong performance reinforces that our profitable growth strategies are working. With a foundation for success firmly in place across the organization, we couldn't be more excited about our future. Thank you for your time this morning. And with that, I'll turn it back to John.
Jim: We currently anticipate the following full year performance.
Jim: Organic revenue growth at 9% or better.
Jim: <unk> growth of 17% to 20%.
Jim: Adjusted EPS, increasing 30% to 35%.
Jim: And lastly, a leverage ratio of approximately three five times by the end of the fiscal year.
Jim: Our strong performance reinforces that our profitable growth strategies are working.
Jim: With the foundation for success firmly in place across the organization.
Speaker Change: Couldn't be more excited about our future.
Speaker Change: For the time this morning, and with that I'll turn it back to John.
John J. Zillmer: Thank you, Jim. Our teams around the world are the driving force behind our success and a key reason I remain confident in our ability to meet and exceed our financial targets, focused on organic revenue growth, margin expansion, adjusted EPS growth, and capital structure enhancement. We're working hard each day to build upon our momentum and deliver on our promises for all stakeholders. Very specifically, the point I'd like to convey with respect to our strong quarter is that we feel very good about the quarter that's in the books.
John: Thank you Jim our teams around the globe are the driving force behind our success and a key reason I remain confident in our ability and our ability to go to and through our financial targets focused on organic revenue growth margin expansion adjusted EPS growth and capital structure enhancement, we're working.
John: Hard each day to build upon our momentum and deliver on our promises for all stakeholders.
John: Very specifically at all.
Speaker Change: Point I'd like to convey.
Speaker Change: With respect to our strong quarter.
Speaker Change: We feel very good about the quarter Thats in the books, we believe that the macro environment continues to cooperate.
John J. Zillmer: We believe that the macro environment continues to cooperate, and we've raised our revenue guidance and our AOI expectations for the second half of this year have both risen. Having already pointed towards the high end of the quantitative AOI guidance range in the last quarter, we plan to update the quantitative AOI guidance range as the year progresses. The operator will now turn the call over to questions. Thank you. We will now begin the question and answer session.
Speaker Change: We've raised our revenue guidance and our expectations for the second half of this year have both resin having already pointed towards the high end of the qualitative quantitative AOE guidance range on the last quarter.
Speaker Change: We plan to update the quantitative guidance range as the year progresses.
Speaker Change: Operator, we will now turn the call over to questions.
Operator: Thank you. We will now begin the question and answer session. If you have a question, please press star, then 1-1 on your touchtone phone. If you are using a speakerphone, you may need to pick up the handset before pressing the numbers.
Speaker Change: Thank you we will now begin the question and answer session. If you have a question. Please press Star then one on your Touchtone phone if youre using a speakerphone you may need to pick up the handset before pressing the numbers in order to accommodate participants in the question queue. Please limit yourself to one question and one follow up to remove yourself from the queue. Please press star one again, we will pause for a moment, while we compile the Q&A roster.
Operator: In order to accommodate participants in the question queue, please submit yourself to one question and one follow-up. To remove yourself from the queue, please press star, 1-1 again. We will pause for a moment while we compile our Q&A roster. Our first question comes from Toni Kaplan with Morgan Stanley. Your line is open.
Speaker Change: Okay.
Speaker Change: Our first question comes from Toni Kaplan with Morgan Stanley. Your line is open.
Toni Michele Kaplan: Thanks so much. You did a really nice job on revenue growth this quarter, and you moved to the higher end of the guidance range. You know, it seems like really good momentum in the business. I was just hoping you could give maybe some additional color on the new business, and you called it out a number of times in the prepared remarks. So I guess, are you seeing acceleration there? Are you seeing changes like a shortening of the sales cycle? Are you able to find new clients? Give us a sense of what the net new was for the corridor and how that's trending, and just the environment and new business. Thanks.
Toni Michele Kaplan: Thanks, so much.
Toni Michele Kaplan: Really nice job on revenue growth this quarter and you move to the higher end of the guidance range.
Toni Michele Kaplan: You know it seems like really good momentum in the business I was just hoping you could give maybe some additional color on the new business and you called it out a number of times in the prepared remarks. So I guess are you seeing acceleration there.
Toni Michele Kaplan: Changes like a shortening of sales cycle are you able to find new clients like this.
Toni Michele Kaplan: Give us a sense of what the net new was for the quarter.
Toni Michele Kaplan: How that's trending and just the environment and new business. Thanks.
John J. Zillmer: Sure. Thanks, Toni, for the question. First of all, we feel very good about our momentum in terms of new business development, new account wins, many in the pipeline and many that are already verbal wins that we don't have signed contracts for. So we're seeing very significant momentum on the new business side, a very active pipeline, a very active selling season in higher education and K-12, which, as you know, they're still in the middle of their selling seasons.
Speaker Change: Sure. Thanks, Toni for the question first of all we feel very good about our momentum in terms of new business development and new account wins.
Toni Michele Kaplan: Many in that many in the pipeline and many of them that are already verbal wins that we don't have signed contracts for so we're seeing very significant very significant momentum on the new business side.
Speaker Change: Very active pipeline very active selling season in higher education, and K through 12, which as you know they are still in the middle of their their selling seasons. So.
John J. Zillmer: So we feel very good about the momentum and about our net new goals for the year. And we'll disclose fully after the full year what our net new results and the components of growth are for the entire enterprise. But right now, we're very pleased with the momentum and have had some very satisfying wins to date and many more to come.
Speaker Change: So we feel very good about the momentum and about our net new but our net new goals for the year and we will disclose we will disclose fully after the full year, what our net new results from the components of growth are.
Speaker Change: For the entire enterprise, but right now, we're very pleased with our momentum and.
Speaker Change: And got some very satisfying wins to date and and many more to come.
Unknown Speaker: Terrific. And I wanted to ask my follow-up on margin. Margin in the U.S., in particular, looked particularly strong. Wanted to understand the drivers a little bit better.
Speaker Change: Terrific and I wanted to ask my follow up on margin.
Speaker Change: In the U S in particular look particularly strong.
Speaker Change: Wanted to understand the drivers a little bit better are you benefiting from maturity and some of the prior years, new business on the margin side and.
James J. Tarangelo: Are you benefiting from maturity in some of the prior year's new business on the margin side? And just the latest on price cost spread and how you're thinking about, it sounds like you're thinking about updating the AOI guidance as we go along, and you're already at the higher end. But just any commentary on the drivers of, particularly the U.S. margin performance. Thanks. Yeah, thanks.
Speaker Change: Just the latest on price cost spread and higher youre thinking about it sounds like you're thinking about updating the guidance as we go along and you're already at the higher end, but just any commentary on the drivers.
Speaker Change: Particularly in the U S market performance.
James J. Tarangelo: Yeah, thanks. So really strong performance year to date on margins, averaging about 65 basis points of margin improvement. And as I noted, you know, about 50 basis points coming from those underlying levers, with the remaining coming from inflation moderating. Within that 50, we really like what we're seeing, particularly in supply chain. The growth has really positioned our supply chain organization to generate efficiencies, negotiate better deals, and we're seeing good results out of our GPOs.
Speaker Change: Yeah. Thanks, Dan So really strong performance year to date on margins, averaging about 65 basis points of margin improvement and as I noted about 50 basis points coming from those those underlying levers with the remaining coming from the inflation.
James J. Tarangelo: Secondly, I would just note the middle of the P&L, as the operating environment continues to normalize, and our operators can focus on optimizing food and labor without sacrificing service to our clients. We've seen really nice results there as well.
Speaker Change: Moderating within that 50, we really like what we're seeing particularly in supply chain.
Speaker Change: The growth is really positioning our supply chain organization to generate efficiencies negotiate better deals and we're seeing good results out of our GPS.
Speaker Change: Secondly, I would just note the middle of the P&L as the operating environment continues to normalize and our operators can focus on optimizing food and labor without sacrificing service to our clients, we've seen really nice results there as well.
Ian Alton Zaffino: Our next question comes from Ian Zaffino with Oppenheimer. Your line is open.
Speaker Change: Terrific. Thank you.
Speaker Change: Our next question comes from Ian Zaffino with Oppenheimer. Your line is open.
Operator: Thank you very much.
Ian Alton Zaffino: Great. Thank you very much very good quarter.
John J. Zillmer: Thank you.
Ian Alton Zaffino: I wanted to ask again on the new business. Was that primarily new outsourcing? Were they competitive wins? Maybe give us a little bit more color there. And then as I look into your pipeline, or as you look into your pipeline, you know, what specific lines of business are doing particularly well with any new Big client opportunities you could talk about.
Ian Alton Zaffino: Thank you.
Ian Alton Zaffino: Wanted to ask on again on the new business.
Ian Alton Zaffino: Yes.
Ian Alton Zaffino: Was that was that primarily new outsourcing where they competitive wins.
Ian Alton Zaffino: Maybe give us a little bit more color there and then as they look into your pipeline or as you look into your pipeline.
Ian Alton Zaffino: What specific lines of business are doing particularly well.
Ian Alton Zaffino: With any new.
Ian Alton Zaffino: Big client opportunities you could talk to that.
John J. Zillmer: Sure, but actually, performance is very broad-based. All the business is doing very well with respect to new business wins, and higher education may sell the most business they've ever sold in their history in terms of numbers of new accounts. So it's been a very solid year from that perspective. Very strong growth in BNI. You know, big wins, obviously, across the enterprise in corrections and in other verticals. So we're very pleased with the broad-based nature of the new account wins and the strength of the pipeline, both domestically and internationally.
Ian Alton Zaffino: Sure actually a performance was very broad based all the business is doing very well with respect to new business.
Ian Alton Zaffino: <unk> and a higher education may sell the most business segments.
Ian Alton Zaffino: Ever sold in their history in terms of numbers of new accounts.
Ian Alton Zaffino: Barry it's been a very solid year from that perspective, very strong growth in DNI.
Ian Alton Zaffino: Big Big wins, obviously.
Ian Alton Zaffino: Across the enterprise and corrections and in other and other vertical. So we're very pleased with the broad based nature of the new account.
Ian Alton Zaffino: Wins, the strength of the pipeline, both domestically and internationally the international business had a very strong year from a from a new perspective so.
John J. Zillmer: The international businesses have had a very strong year from a new perspective. So, yeah, we're very encouraged. And I would tell you, I think we're still seeing significant tailwinds from self-op conversion around the world. We're seeing significant opportunities across all the verticals and across all geographies. So, I feel very good about the new business pipeline and the overall results.
Ian Alton Zaffino: Great, thank you. And then if I could sneak in another question,
Ian Alton Zaffino: Yes, we're very encouraged and I would tell you I think we're seeing a still significant tailwind from self op conversion around the world, We're saying Cigna.
Ian Alton Zaffino: Significant opportunities across all our verticals and across all geographies. So feeling very good about the new business pipeline and in the overall results.
John J. Zillmer: You know, can you just share the status of the Mantle Ridge ownership in your company, if you have any sense? And you've been posting, you know, great results, including, you know, from last quarter. Some are thinking that there could be some type of overhang coming. So any insight you could give us, that'd be helpful. Unknown Speaker, Yeah, certainly.
Speaker Change: Great. Thank you and then if I could sneak in another question.
Speaker Change: If you could share the status of the mantle ridge ownership.
Ian Alton Zaffino: In your company, if you have any type of sense, you've been posting great.
Speaker Change: Results, including last quarter.
Speaker Change:
Speaker Change: Some are thinking that could be competitive overhang coming.
Speaker Change: So any insight you could give us there.
Speaker Change: That'd be helpful.
Speaker Change: Yes.
John J. Zillmer: You know, generally, in short, the Mantle Ridge vehicle that held Aramark stock has been fully and permanently wound down and is no longer a factor for Aramark. And I'm generally not in the habit of commenting on matters relating to our shareholders. But I have obtained permission to share the key details of the current circumstances because we do have a reason to believe that there is a little bit of confusion around the current state of their ownership.
Speaker Change: Yes, certainly.
Speaker Change: Generally.
Speaker Change: In short the mantle ridge vehicle, that's held Aramark stock has been fully and permanently wound down and it was no longer a factor for aramark.
Speaker Change: And I'm generally not in the habit of commenting on matters relating to our shareholders, but I have obtained permission to share. The key details of the current circumstances, because we do have a reason to believe that there is a little bit of confusion around the current state of their ownership. So as I said the fund has been fully and permanently wound down.
John J. Zillmer: So, as I said, the fund has been fully and permanently wound down, and I can confirm that all the stock controlled by Mantle Ridge has found a long-term home. Some was sold over the course of the last six months since their initial sell-down in August, and the balance has found its way to long-term holders. As I'm sure the filings over the course of the next couple of quarters will show, the organizations that have received shares are well-respected long-term investors who've underwritten the company.
Speaker Change: I can confirm that all of the stock control by mantle Ridge has found a long term home somewhat it somewhat sold over the course of the last six months since their initial sell down in August and the balance is found their way to long term holders.
Speaker Change: As.
Speaker Change: Yeah as I am sure the filings over the course of the next couple of quarters will show.
Speaker Change: The organizations that have received shares are well respected long term investors have underwritten the companies.
John J. Zillmer: And we feel very good about the nature of that relationship. So the bottom line is Mantle Ridge's ownership is no longer a factor for Aramark. Paul Halal is a friend, and I trust I will be calling on him for advice in the future. But we no longer have a relationship with Mantle Ridge from an ownership perspective. That's very helpful, Collar. Thank you very much, and good quarter again.
Speaker Change: Strategy thoroughly and we feel very good about the nature of that relationship. So the bottom line is mantle registers ownership is no longer a factor for aramark.
Speaker Change: Paul Hall is a friend and I and I Trust I will be calling on him for advice in the future.
Speaker Change: But we have no no longer a relationship with mental rich from an ownership perspective.
Speaker Change: That's very helpful color. Thank you very much and good quarter again.
Elizabeth Dove: Our next question comes from Lizzie Dove with Goldman Sachs. Your line is open.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Lizzie Dove with Goldman Sachs. Your line is open.
John J. Zillmer: Hey there, thanks so much for taking the question and congrats on a nice quarter. I'm curious, you know; we've heard some negative commentary from other companies over the last few weeks. Doesn't feel like you're kind of seeing the same pressures. Curious if you could provide an update there on what you're seeing in terms of the health of the consumer. And I'll ask for my follow-up now and also kind of any pushback you're receiving on pricing.
Elizabeth Dove: Hey, guys. Thanks, so much for taking the question and congrats.
Elizabeth Dove: Congrats on a nice quarter I'm curious you know we've had some negative commentary from other companies over the last few weeks does it feel like Youre kind of seeing the same pressures I'm curious if you could provide an update just on what you're seeing in terms of health the health of the consumer and I'll ask my follow up now and also kind of any pushback.
Elizabeth Dove: On pricing.
John J. Zillmer: Yeah, I would, I would say we're seeing a very healthy consumer, particularly in the businesses and the verticals that we operate in, as evidenced by the organic growth of the enterprise, and we continue to see very strong consumer response in the sports and entertainment business, very high levels of attendance and per capita spending. Which I think is a very strong indicator.
Elizabeth Dove: Yeah, I would I would say, we're seeing a very healthy consumer, particularly in the businesses and the verticals that we operate in.
Elizabeth Dove: As evidenced by the organic growth.
Elizabeth Dove: Enterprise continuously very strong consumer response in the sports and entertainment business very high levels of attendance and per capita spending.
John J. Zillmer: And which I think is a very strong indicator I think part of that speaks to the verticals, we operate in and the essential services, we provide across a range of.
John J. Zillmer: I think part of that speaks to the verticals we operate in and the essential services we provide across a range of businesses and a range of geographies. So we aren't seeing that consumer pressure, if you will, that other retail organizations may be seeing. From an inflation perspective, we're seeing an environment that is beginning to show some moderation. As we've talked about, we still believe our expectations are in the four to 5% range, both for a food and labor perspective.
Elizabeth Dove: Businesses in a range of geographies. So we arent, we arent seeing that consumer pressure. If you will that other retail organizations may be may be seeing.
John J. Zillmer: From an inflation perspective, we're seeing an environment that is beginning to show some moderation as we've talked about we still believe our expectations are in the 4% to 5% range, both for our food and labor perspective.
John J. Zillmer: But it's also we're also able to achieve pricing to offset that those inflationary cost pressures. So we feel very good about the the model that's in place our ability to recover those costs.
John J. Zillmer: But we're also able to achieve pricing to offset those inflationary cost pressures. So we feel very good about the model that's in place, our ability to recover those costs, and the overall state of the growth of the enterprise and the state of the consumer that we serve.
John J. Zillmer: And the overall state of the of the growth of the enterprise and the.
John J. Zillmer: And the state of the consumer that we serve.
Elizabeth Dove: Great. That's helpful. Thanks so much.
Speaker Change: Great. That's helpful. Thanks, so much.
Heather Nicole Balsky: Our next question comes from Heather Balsky with B of A. Your line is open.
Elizabeth Dove: Our next question comes from Heather <unk> with Bofa. Your line is open.
Emily Marzo: Hi, this is Emily Marzo on behalf of Heather Balsky. First question is... Could you clarify, in terms of your guidance, it sounds like you're guiding to the high end? Is that just on AOI growth or EPS growth as well?
Heather Nicole Balsky: Okay.
Emily Marzo: Hi, This is Lee Marshall on for <unk>.
Emily Marzo: First question is.
Emily Marzo: Could you clarify in terms of your guidance.
Emily Marzo: Sounds like you're guiding to the high end is that just on NOI growth, our EPS growth as well.
James J. Tarangelo: Yeah, in terms of the guidance system, we're really pleased with the performance year to date and the traction that we have. So I think it's reasonable to conclude on both fronts that we would be toward the higher end of the range as well on AOI and EPS.
Emily Marzo: Yes in terms of the guidance isn't.
James J. Tarangelo: Really pleased with the performance year to date and the traction that we have so I think it's reasonable to conclude.
James J. Tarangelo: On both fronts that wed be toward the higher end of the range as well on an EPS.
Emily Marzo: Okay, thank you. And then, could you... As a follow-up, could you provide any clarity or maybe some quantitative on what you're seeing in terms of the pricing discussions on the new accounts and if anything's changed in the last couple of months?
Speaker Change: Okay. Thank you.
Speaker Change: And then could you.
Speaker Change: As a follow up could you provide any clarity or.
Speaker Change: Maybe some quantitative and what youre seeing in terms of the pricing discussion on the new accounts.
Emily Marzo: And if anything has changed in that last couple of months.
John J. Zillmer: No, really nothing. With respect to new accounts, pricing discussions are part of the negotiation process as we sell the new business, but the pricing is always based on what is appropriate from a P&L perspective and a margin perspective as we sell new business. So there's no downward pressure on pricing discussions with new clients, and frankly, we've got very good pricing velocity on those accounts that we already serve. So I would say right now that we're very pleased with the pricing environment.
Speaker Change: No really nothing with respect to new accounts pricing pricing discussions are part of the negotiation process as we sell as we sell the new business, but.
John J. Zillmer: The <unk>.
John J. Zillmer: Pricing is always based on what is appropriate from a P&L perspective.
John J. Zillmer: Margin perspective, as we sell new business so.
John J. Zillmer: There is no there is no downward pressure on on pricing discussions with new clients.
John J. Zillmer: And frankly, we've got a very good pricing velocity on those accounts that we already serve so I would say right now we're very pleased with the pricing environment as you know last year, we struggled.
John J. Zillmer: As you know, last year, we struggled during the contractual pricing period on a couple of businesses due to the lag. That lag has been fully recovered, and we are ahead of that process now. So we feel very good about the pricing environment in general. Our next question comes from Andrew Steinerman with J.P. Morgan. Your line is open.
Andrew Charles Steinerman: During the during the contractual pricing period on a couple of businesses due to the lag.
Andrew Charles Steinerman: That lag has been fully recovered and we are ahead of that that process. Now so we feel very good about the pricing environment in general.
Andrew Charles Steinerman: Thank you.
Andrew Charles Steinerman: Our next question comes from Andrew <unk> with J P. Morgan Your line is open.
Andrew Charles Steinerman: Hi, I just wanted to get a data point on that 4% to 5% food inflation for input costs that you continue to assume how was that in your book of business in the first half of the fiscal.
Andrew Charles Steinerman: Hi. I hope you have a great rest of your day. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye
John J. Zillmer: Yeah, that was roughly 4.2%. In the first half, we saw it was very stable in the first quarter, Andrew, then we saw some, and we actually saw some improvement in the first quarter that kind of hung in the second quarter at around 4.2, 4.3. It was stable. And now we're seeing, in the most recent weeks, a slight easing of that. So it's been in that four to four and a half percent range on the input side pretty much all year with a little bit of volatility in the quarters, but our expectations are we'll see some continued easing over the balance of the year. It's just very hard to predict exactly how much that'll be. And that's for Aramark's book of business, right? That's correct. That's for our book of business and for our specific market basket of products that we buy and sell to our consumers.
Andrew Charles Steinerman: Yes that was roughly four 2% in the first half we saw it was very stable in the first quarter. Andrew then we saw some and we actually saw some improvement in the first quarter, then it kind of hung in.
John J. Zillmer: In the second quarter at around $4 to $4 three it was stable and now we're seeing in most recent weeks a slight easing again of that so it's been in that four to four 5% range on the input side pretty much all of the year with a little bit of volatility in the in the quarters, but our expectations are we'll see.
John J. Zillmer: We'll see some continued easing over the balance of the year, just very hard to predict exactly how much that will be.
John J. Zillmer: That's for air market book of business right.
John J. Zillmer: Correct Thats for our book of business at <unk> and for our specific market basket of products that we buy and sell.
John J. Zillmer: To our consumers.
Neil Christopher Tyler: Our next question comes from Neil Tyler with Redburn Atlantic. Your line is open.
John J. Zillmer: Yes.
John J. Zillmer: Our next question comes from Neil Tyler with Redburn Atlantic Your line is open.
Neil Christopher Tyler: Yeah, hi, good afternoon. Thank you.
Neil Christopher Tyler: Yes, hi, good afternoon.
John J. Zillmer: Firstly, John, on the new wins and your confidence that you expressed earlier, is there any change in the source of those compared to, say, this time last year, whether that's first time outsourcing or competitive bids? That's the first question. And then secondly, within the international segment, the obviously strong organic growth, can you remind us to what extent Merlin's contract is now sort of at cruising altitude? Is that contributing meaningfully still to the year-on-year comparison?
Neil Christopher Tyler: Thank you.
Neil Christopher Tyler: Firstly, John on the on the new wins and your.
John J. Zillmer: Your confidence that you expressed failure, if any change in the source of those.
John J. Zillmer: <unk> to say this time last year, whether that's first time outsourcing or competitive bids and that's the first question and then secondly.
John J. Zillmer: Within the international segment the upstream.
John J. Zillmer: Strong organic growth can you remind us to what extent.
John J. Zillmer: The contract is now sort of at cruising altitude is that or is that is that contributing meaningfully still to the year on year comparison.
John J. Zillmer: Yeah, I would say first of all, with respect to Merlin, it's at cruising speed year over year. You know, all the Merlin business was open and operating last year at this time as well. So it's basically a very similar operating environment.
John J. Zillmer: <unk>.
John J. Zillmer: Yes, I would say first of all with respect to Maryland at cruising speed year over year.
John J. Zillmer: All the all the Merlin business was open and operating last year at this time as well so it's basically.
John J. Zillmer: We did pick up an additional piece of business from Merlin, but we're just beginning to operate that now, so that hasn't really affected the revenue numbers yet in terms of year over year comps. And in terms of the source of new business wins, I would say it's very consistent with what we saw last year. General industry trends continue to be similar, you know. I would say first time outsourcing is still contributing probably in the 40 to 45% range of new business wins, and the balance is competitive bids from either regionals or other major players. So, on balance, it would be very similar to last year's sales environment.
John J. Zillmer: Very similar operating environment, we did pick up an additional piece of business from Maryland, but we're just beginning to operate that now so that hasnt really that hasnt really affected the revenue numbers yet.
John J. Zillmer: In terms of year over year comps.
John J. Zillmer: And in terms of the source of new business wins, I would say, it's very consistent with what we saw last year.
John J. Zillmer: General industry trends continue to be similar.
John J. Zillmer: You know I would say first time outsourcing still contributing probably in the $40 to 45% range of new business wins and the balance are competitive bids from either regionally or other major players. So I would say on balance a very similar to last year's.
John J. Zillmer: Sales environment.
Neil Christopher Tyler: Great, thank you very much.
Speaker Change: Great. Thank you very much.
Shlomo H. Rosenbaum: Our next question comes from Shlomo Rosenbaum with Steve Foley. Your line is open.
Shlomo H. Rosenbaum: Our next question comes from Shlomo Rosenbaum with Stifel. Your line is open.
Shlomo H. Rosenbaum: Hi, thank you for taking my questions. Hey, John, can you just go back to that Merlin comment that you made?
Shlomo H. Rosenbaum: Hi, Thank you for taking my questions Hey, John can you just getting back to that Merlin.
Shlomo H. Rosenbaum: Comment that you made you picked up an additional piece of business is that is that a client that has a lot of room to expand from where you are right now where are you at a point, where you kind of maxed out over there.
Shlomo H. Rosenbaum: No I would say there is still continued room for expansion with Merlin I don't want to speak for them, but they still they obviously have.
Shlomo H. Rosenbaum: A number of operations in other parts of the world, where they continue to self operate those and we are we would love to be an operator for them in other parts of the world I would say with respect to the business in the UK and the U S. It's pretty steady state with the addition of this one.
John J. Zillmer: You picked up an additional piece of business. Is that a client that has a lot of room to expand from where you are right now, or are you at a point where you kind of maxed out over there?
John J. Zillmer: Now I'd say there is still continued room for expansion with Merlin. I don't want to speak for them, but you know they still obviously have a number of operations in other parts of the world where they continue to self-operate those, and we, you know, we would love to be an operator for them in other parts of the world. I would say with respect to the business in the UK and the US, it's in a pretty steady state, with the addition of this one additional piece, we feel very good about it, but yeah, I think there's still a runway there with Merlin and we'll continue to work very aggressively to do a great job for them and hopefully, continue to expand the partnership.
John J. Zillmer: One additional piece, we feel very good about it.
John J. Zillmer: But but yes, I think theyre sold runway.
John J. Zillmer: With Merlin and we'll continue to work very aggressively to do a great job for them and hopefully continue to expand the partnership.
Shlomo H. Rosenbaum: Okay great and then just for the follow-up just getting into the weeds a little bit could you comment there was 2% growth in rest of the world for international and I don't know if that's just a tough comp kind of stood out amongst a really strong growth over there and then just in the US everything's doing really well I know that's taking some time to stabilize health care if you could talk about how you're thinking you know a time frame for that to kind of you know reach a stabilization and start to grow
Speaker Change: Okay, Great and then just for the follow up just getting into the weeds, a little bit could you comment there was 2% growth in rest of the world for international.
Shlomo H. Rosenbaum: It's just a tough comp kind of stood out amongst a really strong growth over there and then just.
Shlomo H. Rosenbaum: In the U S. Everything is doing really well I know thats, taking some time to stabilize health care, maybe you could talk about how youre thinking at.
Shlomo H. Rosenbaum: The timeframe for that to kind of.
Shlomo H. Rosenbaum: <unk> stabilization and then start to grow.
John J. Zillmer: Yeah, I think we've reached that stabilization point for the healthcare business, and I think you're speaking specifically about senior living.
Speaker Change: Yeah, I think I think we've reached that stabilization point for the health care business and I think you're speaking specifically about senior living.
John J. Zillmer: We believe we've stabilized that business and that we will be growing from here in that segment. We're very pleased with the leadership of that team and the progress they've made in the business. So, very, very confident in our ability to grow that significantly over time. With respect to the 2% comp for the rest of the world, we have over 20% organic growth in the rest of the world. So I think the impact that you're talking about really is about with respect to the gap numbers, which reflect all the currency translation effects in international business. So that would account for that variance. But our rest of the world calculation is that we're over 20% organic growth. Yeah, John, I'll just add that.
John J. Zillmer: We believe we have stabilized that does assume that we will be growing from here.
John J. Zillmer: That segment, we're very pleased with the leadership of that team and the progress they've made in the business are very.
John J. Zillmer: I'm very confident in our ability to grow that significantly over time.
John J. Zillmer: With respect to the 2% comp for rest of World. We have we have over 20% organic growth in rest of world. So I think the.
John J. Zillmer: The impact that you're talking to really is about with respect to the GAAP numbers, which reflect all the <unk>.
John J. Zillmer: Currency translation effects.
Speaker Change: National so that would that.
John J. Zillmer: That would account for that variance, but our rest of world calculation is that were over 20% organic growth, yes, I would just add to that the $83 million of FX headwinds that you see there that was primarily in rest of the world specifically in Latin America.
James J. Tarangelo: Yes, John, I'll just add that the 83 million FX headwinds that you see here were primarily in the rest of the world, specifically in Latin America.
Speaker Change: Alright, thank you.
Leo Carrington: Our next question comes from Leo Carrington with Citi. Your line is open.
James J. Tarangelo: Our next question comes sorry, our next question comes from Leo Carrington with Citi. Your line is open.
Leo Carrington: Good morning. Thank you, John and Jim.
Leo Carrington: Good morning, Thank you John and Jim.
James J. Tarangelo: It sounds like you're indicating that the... 17% to 20% AOI growth guide could be raised later in the year. So I suppose why hold off doing it now? What could push you above the top end of that, or what lands you in the middle? And then, secondly, perhaps just what kind of margin expansion might be reasonable to expect in H2 on a year-over-year basis compared to what you achieved in H1.
Leo Carrington: It sounds like you are undertaking that the <unk>.
James J. Tarangelo: 2017% to 20% NOI growth guide could be raised laced with ESI.
James J. Tarangelo: So why hold off doing it now.
James J. Tarangelo: What could.
James J. Tarangelo: Push you above the top end of that or what lines. You are in the middle and then secondly, perhaps what kind of margin expansion might be reasonable to expect it.
James J. Tarangelo: H T on a year over year basis compared to what you've achieved an H one.
John J. Zillmer: Sure. So, yeah, like I said, we had very strong performance in Q1 and Q2, with 65 basis points of margin improvement. You know, in terms of the outlook, we remain very optimistic, and I said, you know, expecting to be toward the higher end of that range. A couple of factors in terms of we're lapping some significant pricing actions in the prior year, so we'll see how inflation plays out, and the timing of new products obviously could have an impact as well. But, like I said, we're really optimistic about the outlook, and we'll continue to keep you posted on that front.
Speaker Change: Sure so yes.
James J. Tarangelo: As I said, we had very strong performance in Q1 and Q2 you have a.
John J. Zillmer: 65 basis points of margin improvement.
John J. Zillmer: In terms of the outlook, we remain very optimistic and I said, you are expecting to be toward the higher end.
John J. Zillmer: That range a couple of factors in terms of we're lapping some significant pricing actions in the prior year, so well see how inflation.
John J. Zillmer: He is out and the timing of our new obviously, it could have an impact as well, but like I said, we're really optimistic.
John J. Zillmer: With the outlook and we'll continue to keep you posted on that front.
Leo Carrington: Yeah, I would just add the commentary as we indicated the top end of the range of AOI and EPS. We're very confident in our ability to deliver on that, but we're also somewhat subject to what happens in the inflation environment in that respect. And so, you know, we believe that this is a good environment, that we have inflation that may ultimately moderate further. And if it does, that will be a continuing tailwind into the third and fourth quarters.
Speaker Change: Yeah, and I would just add commentary as we indicated the top end of the range of alloy and EPS, we're very confident in our ability to deliver on that we're also.
Leo Carrington: Somewhat somewhat.
Leo Carrington: Subject to the to what happens in the inflation environment from that.
Leo Carrington: In that respect and so we believe.
Leo Carrington: This is a good.
Leo Carrington: This is a good environment that we have inflation that that ultimately may moderate further and if it does.
Leo Carrington: That will be a continuing tailwind into the third and fourth quarter and as we experienced those changes will continue to update that guidance. Obviously, we're working to get that number as high as high as we can we're all incentive for the same thing we all want to drive that performance and the performance of the organization and.
James J. Tarangelo: And as we experience those changes, we'll continue to update that AOI guidance. Obviously, we're working to get that number as high as we can. We're all incented for the same thing. We all want to drive the performance of the organization. And, you know, we'll update it further as we have more data with respect to what second half inflation might look like.
James J. Tarangelo: We'll update further as we have more data with respect to what second half inflation, Mike might look like.
Leo Carrington: Okay, thank you. If you could help me with, within the margin expansion in Q2, to what extent pricing has been driving the margin expansion, i.e., that pricing has now caught up to the incurred cost inflation.
Speaker Change: Okay. Thank you if I might just a.
Speaker Change: Follow up on that one.
Speaker Change: If you could help on.
Leo Carrington: The margin expansion in Q2.
Leo Carrington: Whats extend the.
Leo Carrington: Pricing has been driving the margin expansion I E.
Leo Carrington: That the <unk>.
Leo Carrington: <unk> is now has now caught up to the incurred cost inflation.
James J. Tarangelo: Yeah, so again, the underlying levers, right, which excludes the pricing component, were about 50 basis points. So the delta between 68 and 50 is 15 to 18 basis points of margin improvement as a result of the pricing and inflation moderating.
Leo Carrington: Yes.
James J. Tarangelo: The underlying levers rate, which excludes the pricing component was about 50 basis points. So the delta between 68% and 50, So 15 to 18 basis points of margin improvement was the result of the pricing and inflation moderating.
Leo Carrington: Okay, very clear, thank you very much. Our next question comes from Ashish Sabadra with RBC. Your line is open. Thanks for taking my question. Solid progress on the margin front.
Speaker Change: Okay very clear thank you very much.
Ashish Sabadra: Our next question comes from Ashish Sabadra with RBC. Your line is open.
Ashish Sabadra: Our next question comes from Ashish <unk> with RBC. Your line is open.
Ashish Sabadra: Thanks for taking that question solid progress on the margin correct.
Ashish Sabadra: Wondering if you could highlight some of the efforts in place to continue to drive more margin expansion, particularly on the supply chain efficiency side as well.
Ashish Sabadra: The progress on the cost takeout Frank Thanks.
John J. Zillmer: Certainly on the supply chain side, we continue to work very aggressively to pursue, as we build the business and grow the organization, we continue to use that leverage to go ahead and negotiate new and better and more attractive deals with our suppliers and the manufacturer partners that we have around the world. And we've been able to do just that. We're seeing significant improvement year over year in supply chain profitability that contributes to the overall profitability of the enterprise. So, you know, I'm very pleased with that progress.
Ashish Sabadra: Certainly on the supply chain side, we continue to work very aggressively to pursue.
John J. Zillmer: As we build the business and grow the organization. We continue to use that leverage to go ahead, and negotiate new and better and more attractive deals with our suppliers and the manufacturer partners that we have around the world.
John J. Zillmer: And we've been able to and we've been able to do just that we're seeing significant improvement year over year in supply chain profitability that.
John J. Zillmer: We're also working very aggressively to build our international scale in terms of the global supply chain and working with other partners to go ahead and build that scale, which gives us an additional opportunity to impact the business, both domestically and internationally. So, very, very focused on supply chain growth. And we think it'll be a big contributor to margin expansion over time. That's one of the key levers for the company that we've identified in our business case and in our investor day, if you will, that it will be a solid contributor going forward. And it has proven to be and will continue to be. And I'm sorry; I didn't understand the second half of the question.
John J. Zillmer: That contributes to the overall profitability of the enterprise so very.
John J. Zillmer: Very pleased with that progress. We're also working very aggressively to build our international scale and <unk>.
John J. Zillmer: Terms of global supply chain and working with other partners to go ahead and build that scale, which gives us additional opportunity.
John J. Zillmer: Two impacted business, both domestically and internationally, so very very focused on supply chain growth and we think it'll be a big contributor to margin expansion over time, that's one of the key levers for the company that we've identified in our business case and in our Investor Day, If you will that that will be a solid.
John J. Zillmer: February going forward and it has proven to be and will continue to be and I'm, sorry, I didn't get the second half of the other drivers yes. Some of the other drivers there of margin expansion in the middle of the P&L.
James J. Tarangelo: Some of the other drivers of margin expansion, the middle of the P&L, we really like what we saw with the operating environment, more normalized. Our operators are doing a great job optimizing food and labor costs, specifically reducing overtime and agency labor, again, as that environment more normalizes. And then, secondly, on our SG&A, the organization is really fit for purpose with a spin. You can see SG&A actually corporate costs down a little bit versus the prior year. So we're able to take a lot more growth on really without adding much to the top line costs.
James J. Tarangelo: We like what we saw over the operating environment more normalize our operators are doing a great job optimizing food and labor cost, specifically, reducing overtime and agency labor again as the environment Normalizes and then secondly on our SG&A. The organization is really fit for purpose with the spin you can.
James J. Tarangelo: See SG&A actually corporate costs are down a little bit versus the prior year. So we're able to take a lot more growth on really without adding much to the top line.
James J. Tarangelo: Cost.
James J. Tarangelo: That's a great color. Thank you very much. Our next question comes from Stephanie Moore with Jeff Fries. Your line is open.
Speaker Change: That's great color. Thank you very much.
Stephanie Lynn Benjamin Moore: Our next question comes from Stephanie Moore with Jeff Reese. Your line is open. Hi, good morning. Thank you.
Stephanie Lynn Benjamin Moore: Our next question comes from Stephanie more with Jefferies. Your line is open.
Stephanie Lynn Benjamin Moore: Hi, good morning, Thank you.
Stephanie Lynn Benjamin Moore: I would tell good morning can you talk a little good morning, I was hoping.
Stephanie Lynn Benjamin Moore: A little bit about the strength, you're seeing in the base business, what's driving a lot of the growth.
Stephanie Lynn Benjamin Moore: Thanks.
John J. Zillmer: Yeah, we're seeing overall participation rates and strong, strong customer acceptance in a number of businesses. In higher education, we're seeing very strong performance in terms of customer satisfaction scores and overall participation on university campuses. We're seeing upperclassmen select board plans on a more frequent basis, which is a key driver of growth opportunity.
Stephanie Lynn Benjamin Moore: Yes, we're.
John J. Zillmer: Seeing our overall participation rates and strong strong customer acceptance in a in a number of businesses.
John J. Zillmer: Higher education, we're seeing very strong performance in terms of the customer satisfaction scores and the overall participation on University campuses, we're seeing upper Classmen Select Board Board plans on a more frequent basis, which is a key driver of growth opportunity.
John J. Zillmer: We're seeing very strong base business growth in the B&I segment, both domestically and internationally, as return to work has normalized, and businesses are focused on growing again. And we're seeing very strong new business wins, and B&I as well, contributing to that. So, you know, overall, we're seeing a very healthy environment for all the businesses we operate in, and we're very, we're very pleased overall with the results in both the operating environment, their cost containment, customer accounts, overall participation rates, all very supportive of just that strong base business growth. Great, and that's helpful. This is a follow-up.
John J. Zillmer: We're seeing very strong base business growth and the P&I segment, both domestically and internationally as return to work has normalized and.
John J. Zillmer: <unk> are focused on growing again.
John J. Zillmer: And we're seeing very strong new business wins in DNI as well contributing to that so overall, we're seeing a very healthy.
John J. Zillmer: Environment for all of the businesses we operate in.
John J. Zillmer: And we're very we're very pleased overall with the results.
John J. Zillmer: In both the operating environment, there are cost containment and the customer counts overall participation rates all very supportive of just that strong base business growth.
Speaker Change: Great No that's helpful and just as a follow up could you remind us very rich.
John J. Zillmer: Pension rates are trending at the moment.
John J. Zillmer: Could you remind us where retention rates are trending at the moment? Yeah, right now, we expect to achieve 96% retention, which is our historical standard. And we are on track to achieve that objective this year. So I feel very good about continued high retention rates across the enterprise.
Speaker Change: Yeah right now we're.
John J. Zillmer: We expect to achieve 96% retention, which is our historical standard.
John J. Zillmer: And we are we are on track to achieve that objective. This year. So I feel very good about our continued high retention rates across the enterprise.
Jasper James Bibb: Thank you. Our next question comes from Jasper Bibb with True Security. Your line is open.
John J. Zillmer: Thank you. Our next question comes from Jasper Bibb with true Securities. Your line is open.
Jasper James Bibb: Hey, good morning. I was hoping you could give a bit more color on the GPO and supply chain efficiencies. I mean, how are you thinking about the opportunity to keep growing spend under management over the next few years and what that could drive in terms of margin leverage?
Jasper James Bibb: Hey, Good morning was hoping you could give a bit more color on the GPO.
Jasper James Bibb: And supply chain efficiencies I guess, how are you thinking about the opportunity to keep growing.
Jasper James Bibb: Bend under management over the next few years and what that can drive in terms of margin leverage.
John J. Zillmer: Well, very specifically, we believe that the supply chain GPO opportunity is very significant. We continue to look at both the organic growth of that through the addition of new business, as well as the potential M&A activity in the GPO sector, both domestically and internationally, looking at ways to continue to build scale. But our primary growth vehicle for the GPO will be the organic growth of selling new business, adding new accounts, and adding that spend to our existing $19 billion worth of spend. That has double benefits.
Jasper James Bibb: Very specifically, we believe that the supply chain GPO opportunity is very significant we continue to look at.
John J. Zillmer: At both the organic growth of that through the addition of new business as well as the potential M&A activity with the GP and the GPO sector.
John J. Zillmer: Both domestically and internationally looking at ways to continue to build scale, but our primary growth vehicle for the GPO will be the organic growth of selling new business, adding new accounts and adding that spend to our existing $19 billion worth of spend that has a double benefit. So we are in.
John J. Zillmer: We earn both income from the GPO, and we are able to negotiate better deals that impact our core business as a result of that increased volume. So it is a key factor for the long-term margin expansion of the enterprise. And as I said, we're working very aggressively to continue to build that business both domestically and internationally and working with our existing partners to find ways to serve them in other parts of the world. That opens up a whole new range of opportunities for us.
John J. Zillmer: Both the income from the GPO and we were.
John J. Zillmer: We are able to negotiate better deals that impact our core business as a result of that increased volume. So it is a key factor for the long term margin expansion.
John J. Zillmer: Of the enterprise and.
John J. Zillmer: And as I said, we are working very aggressively to continue to build that business, both domestically and internationally and working with our existing partners to find ways to serve them in other parts of the world that opens up a whole new range of opportunities for us.
Jasper James Bibb: Thanks. I'm curious if you could provide any update on Salesforce productivity. It seems like you've gotten good leverage on the investments you made a few years ago, but any update on where that stands today would be helpful.
Speaker Change: Thanks, and then curious if you could provide any update on sales force productivity. It seems like you've got some good leverage there on the investments you've made a few years ago.
Jasper James Bibb: Any update on where that stands today would be helpful.
John J. Zillmer: Yeah, I would say we're very, very pleased with overall Salesforce productivity. That, you know, as we work through the operating review discipline, we have meetings on a monthly basis with each of the businesses, we sit down and review with the presidents of those businesses and with the country presidents the sales results, literally every 30 days. And so we see the evidence of that productivity on a continuing basis. So, we are very pleased with the results.
Speaker Change: Yes, I would say, we're very very pleased with overall sales force productivity.
John J. Zillmer: Yeah.
John J. Zillmer: Yes, we as we work through.
John J. Zillmer: The operating review discipline, we have on a monthly basis with each of the businesses, we sit down and review.
John J. Zillmer: With the presidents of those businesses and what the country presidents.
John J. Zillmer: The sales results literally every 30 days and so we've seen we see the evidence of that productivity.
John J. Zillmer: On a continuing basis, so very pleased with the results.
Jasper James Bibb: And frankly, we feel like we've got a very productive sales organization. We are fully staffed and feel comfortable with the level of resources that we have positioned against the growth opportunities. And we're all always looking for new and different verticals to add to the capabilities of the company to go ahead and expand this universe of opportunities for that sales group to pursue. So Merlin was a great example of that; that was a vertical which had, you know, was 100% self-up in the past. It was a great business opportunity, and we continue to look for new verticals that we can add to the portfolio.
John J. Zillmer: Frankly, we feel like we've got a very productive sales organization.
Jasper James Bibb: We are fully staffed.
Jasper James Bibb: And I feel comfortable with the level of resources that we have positioned against the growth opportunities.
Jasper James Bibb: We're also and we're always looking for new and different verticals to add to the capabilities of the company to go ahead and expand the universe of opportunities for that sales group to pursue so Merlin was a great example of that that was a that was a vertical which had a pad.
Jasper James Bibb: 100% itself up in the past it was a great business opportunity and we continue to look for new.
Jasper James Bibb: Verticals that we can that we can add to the portfolio.
Joshua K. Chan: That's helpful. Thanks for taking the question.
Speaker Change: That's helpful. Thanks for taking the question.
Joshua K. Chan: Our last question comes from Josh Chan with UBS. Your line is open.
Joshua K. Chan: Our last question comes from Josh Chen with UBS. Your line is open.
Joshua K. Chan: Hi, good morning. Thanks for taking my questions.
Joshua K. Chan: Hi, good morning, Thanks for taking my questions.
Joshua K. Chan: I think you mentioned that the underlying margin improvement was 50 basis points. This quarter I think it was the same last quarter. So could you just remind us whats implied in your guidance in terms of underlying margin improvement for the year.
Joshua K. Chan: Yes, so again, we haven't baked in any benefit from inflation moderating or inflation tailwind for our full year guidance, we assumed inflation.
Joshua K. Chan: Is that similar levels as they are as they were for the second quarter for the remainder of the year.
Joshua K. Chan: I think you mentioned that the underlying margin improvement was 50 basis points this quarter. I think it was the same last quarter. So could you just remind us what's implied in your guidance in terms of underlying margin improvement for the year?
James J. Tarangelo: Yeah, so again, we haven't baked in any benefit from inflation moderated or inflation tailwinds for our full-year guidance. We assumed inflation would be at similar levels as it was for the second quarter for the remainder of the year.
Joshua K. Chan: Okay, and then I guess in terms of just the core margin improvement.
Joshua K. Chan: Okay, and then I guess in terms of just the core margin improvement. Could you talk about your confidence in that sustaining beyond 2024 based on the initiatives that you have to drive improvement?
James J. Tarangelo: Could you talk about your confidence in that sustaining beyond 2024 based on the initiatives that you have to drive improvement. Thank you.
James J. Tarangelo: Yeah, given the traction that we have, you know, we're very comfortable that the model is working, and the levers that are driving the margin improvement will continue on into 2025 and 2026. With respect to improved efficiencies and scale in our supply chain, the commentary made with respect to SG&A, that will be similar as we plan for the next couple of years as well. And then again, in the middle of the P&L, the trends that we are seeing, I think will give us some momentum and tailwinds into 2025 as well.
Speaker Change: Yes, given the traction that we have we're very comfortable that the model is working and the levers that are driving the margin improvement will continue on into 2025, and 2026 with respect to improved efficiencies and scale in our supply chain the commentary I made with respect.
James J. Tarangelo: To SG&A that will be similar as we plan for the next couple of years as well and then again at the middle of the P&L. The trends that we're seeing I think will give us some momentum and tailwind into 2025 as well.
John J. Zillmer: Yeah, I would just add just one. Terrific. I'll just add one final comment. No, that's all right.
Speaker Change: Yeah, and I would just add just one.
Speaker Change: Terrific I will just add one final comment.
John J. Zillmer: As Jim indicated, we feel very good about the middle of the P&L management, the operating team doing a great job of focusing on delivering efficiency and services to our customers. And ultimately, that's the best test of an organization. Can you manage the business effectively and deliver on the results that your clients expect?
Speaker Change: No Thats alright, as Jim indicated we feel very good about the middle of the P&L management, the operating team doing a great job of folk.
John J. Zillmer: Guessing on delivering efficiency and services to our customers.
John J. Zillmer: And ultimately that's the best test of an organization can you manage the business effectively and deliver on the results at your clients expect and we feel very good about our ability to do that.
John J. Zillmer: And we feel very good about our ability to do that and our ability to go ahead and impact the business in a meaningful way. So with that, I'd like to thank all of you for the time that you spent with us this morning. I really appreciate it. I feel good about the quarter, and we will continue to update you, you know, through the balance of this year as we achieve great results. So, thank you very much.
John J. Zillmer: And our ability to go ahead and impact the business in a meaningful way so.
John J. Zillmer: With that I'd like to thank all of you for the time that you've spent with US. This morning really appreciate it I feel good about the quarter.
John J. Zillmer: And we will continue to update you.
John J. Zillmer: Through the balance of this year as we achieve great results. So thank you very much.
Operator: Thank you for participating. This concludes today's conference. You may now disconnect.
Speaker Change: Thank you for participating this concludes today's conference you may now disconnect.
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Operator: Okay.